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At an FDIC board meeting Tuesday, Bair is expected to advocate rebuilding the Deposit Insurance Fund by asking banks to prepay three years worth of premiums — which delays a hit to bank earnings while immediately boosting the agency's reserves.
September 28 -
WASHINGTON — Under pressure from lawmakers not to charge banks another special assessment, Federal Deposit Insurance Corp. Chairman Sheila Bair said the agency would consider other alternatives — including some obscure ones — before it decides to act.
September 18 -
WASHINGTON — Rumors that the Federal Deposit Insurance Corp. is close to broke — which have increasingly gained traction as the level of federal reserves has declined — appear greatly exaggerated.
September 11 -
Despite widespread optimism about the broader economy, a regulatory report out Thursday showed that the banking industry remains deep in crisis.
August 27 -
The growing number of failures this year — now more than three times their total for all of 2008 — has pushed the chances of a second special deposit insurance premium to a near certainty.
August 18
WASHINGTON — The Federal Deposit Insurance Corp. voted Tuesday to release a proposal that would require banks to prepay three years' worth of premiums, giving it an additional $45 billion to deal with rising bank failures.
The plan would avoid charging another special assessment on institutions or borrowing from the Treasury Department — although the agency is planning to seek comment on both options.
Under the plan, an institution's prepaid assessment would initially count as a prepaid expense — an asset — and give the FDIC added resources to deal with an expected increase in resolution costs. The value of that asset would decline over time.
According to a memo prepared by FDIC staff, the added funds are necessary immediately because the condition of the Deposit Insurance Fund is rapidly deteriorating. Agency staff estimate the DIF will be insolvent by Sept. 30 in part due to increased provisioning for anticipated failures.
The agency said that even charging two special assessments in the third and fourth quarters of this year would not be enough to keep the DIF solvent.
The FDIC estimated that over the next four years, the fund will incur approximately $100 billion in failure costs. That figure is significantly higher than the $70 billion the FDIC estimated in May.
"Projected failures have increased due to further deterioration in the condition of insured institutions, as reflected in the increasing number of problem institutions," the memo said. "Asset quality problems among insured institutions are not expected to abate in the near-term."
Still, the FDIC said it expected the increase in failures and related costs to be temporary, predicting that failures will peak this year and next. The FDIC staff is proposing to raise premiums by 3 basis points beginning in 2011, arguing that industry earnings will be stronger. Currently, most banks pay an annual premium of between 12 to 16 basis points.
Under the agency's plan, all institutions would be required to pay on Dec. 30 their estimated risk-based assessment for 2010 through 2012.
An institution can apply to the FDIC for an exemption, which will be considered on a case-by-case basis.
Under the funding plan, the FDIC projected the DIF balance would not return to its statutory minimum of $1.15 for every $100 in insured deposits until 2017.
